How credit scores affect your mortgage rate
Read, 2 minutes
- A high credit score could save you thousands of dollars in mortgage interest payments over the life of your loan
- Lenders consider your score an indicator of how likely you are to repay the loan
- Consider taking steps to improve your score before applying for a mortgage
How mortgage lenders use credit scores
Credit scores generally range from 300 (the lowest) to 850 (the highest). This number can make a big difference in determining whether you qualify for a mortgage and the terms you are offered.
A higher score increases a lender’s confidence that you will make payments on time and may help you qualify for lower mortgage interest rates and fees. Additionally, some lenders may reduce their down payment requirements if you have a high credit score.
What credit score do you need to get the best mortgage rate?
A high score
A score of 670 or higher is considered good. Lenders differ, but they generally want to see a score of at least 620 before offering most home loans. Mortgage lenders also consider things like your credit report, level of debt and income.
A low score
If your score is below 620, you may still be able to qualify for a loan backed by the Federal Housing Administration. FHA loans tend to have higher interest rates and fees.
How a high credit score could save you money
Let’s say, for example, you plan to get a 30-year fixed-rate mortgage for $300,000. Here’s what your loan could look like if you had a credit rating in the 760 to 850 range, compared with one in the 620 to 639 range. Not only would your monthly payment be lower, but you could save $116,354 on interest over the life of the loan.
|760-850 Credit score||620-639 Credit score|
4 ways to boost your credit score
Make sure you pay all of your bills on time.
Pay off as much credit card debt as possible. Lenders prefer that balances be less than 30 percent of your available credit.
Avoid closing old credit card accounts or open new ones.